2005 (2) TMI 47 - HC - Income Tax

Building tax - Whether, Tribunal is right in law in holding that the building tax paid Rs. 1,98,609 under the Kerala Building Tax Act is allowable business expenditure under section 30(b) of the Income-tax Act, 1961? - When section 30 specifically covers deduction of expenditure or taxes, we do not think the Legislature intended such item of expenditure being considered for deduction under the residuary head of section 37(1) of the Act. In such a situation we answer the question in favour of the Revenue and hold that the building tax paid under the Income-tax Act is not an allowable business expenditure either under section 30(b) or under section 37(1) of the Income-tax Act, 1961.

Summary

Issues:
1. Allowability of building tax as business expenditure under section 30(b) of the Income-tax Act, 1961.

Analysis:
The judgment pertains to the question of whether building tax paid under the Kerala Building Tax Act can be considered as allowable business expenditure under section 30(b) of the Income-tax Act, 1961. The applicant claimed a sum of Rs. 1,98,609 as building tax paid under the Kerala Building Tax Act to be considered as business expenditure. The assessing authority initially rejected the claim, stating that the tax was incurred for bringing a capital asset into existence and not for earning income. The Commissioner of Income-tax (Appeals) later allowed the claim, considering the building tax as business expenditure. The Revenue, dissatisfied with this decision, appealed before the Tribunal, which upheld the Commissioner's decision.

The court referred to previous judgments, including Michael Joseph and Co. v. CIT and Continental Tourist Home v. CIT, which held that building tax is part of the capital asset and not revenue expenditure. The court emphasized that for a payment to be deductible under section 30(b), it must be for the purpose of augmenting the business or profession. The assessee's counsel argued that the decision in Indian Aluminium Co. Ltd. v. CIT should be considered, as it was not referenced in the previous judgments. However, the Senior standing counsel for the Income-tax Department contended that the Indian Aluminium Co. case was not applicable to the present situation.

The court examined the Indian Aluminium Co. case, which dealt with wealth-tax payment as a permissible deduction under the Income-tax Act. It distinguished the case from the current one, highlighting that the Kerala Building Tax Act imposes a one-time tax on buildings, not a recurring liability like municipal tax. The court cited section 30 of the Income-tax Act, which allows deductions for rent, rates, taxes, repairs, and insurance for premises used for business. It noted that municipal tax, a recurring liability, is specifically mentioned in section 30(b), unlike building tax. The court concluded that building tax is a capital expenditure and cannot be allowed under section 37(1) of the Income-tax Act, which covers only revenue expenditure. It held that the building tax paid is not an allowable business expenditure under either section 30(b) or section 37(1) of the Income-tax Act, 1961.